Bharti Airtel stock's fate tied to ARPU numbers

If the ARPU numbers rise telecom stocks like Bharti Airtel will go up, explains Mahantesh Sabarad of SBICAP Securities in this interview with ET Now. Edited excerpts:How much merit do you find in Credit Suisse's report saying that metals should be avoided? I do not know whether price-to-book is a multiple that you should be looking at when it comes to metal stocks. After a long time, we are seeing capacity utilisation going up sharply in the metal space. In the past decade or so, metal industry has been bogged down by over capacity particularly from China. They had too much of inventory; those have either been gradually consumed or the capacity is getting rationalised. Consequently, the utilisation levels are up sharply and that has led to the rally in metal prices. I believe that the rally will continue because now we are at the cusp of a recovery which boasts very well for the metal sector where demand is gradually ramping up.In India, metal companies have reduced their debt burden quite sharply. Their debt-to-EBITDA levels tells you that from an investor's perspective the metal sector has not yet lost steam.But ultimately metal prices are a function of what will happen in China and international markets. If China is talking about putting price curbs, it will impact demand.Theoretically yes, but we do not know what is the conviction behind the price controls that these Chinese authorities will exercise. I keep my fingers crossed because metals are a global commodity. China may not be able to drive down prices alone. There would be a sentimental impact but from a fundamental perspective prices will remain elevated. More importantly, you need to look at the conversion cost which will remain elevated given the high capacity utilisation levels.Do you like anything from the product space? We tend to only think about IT and we start with TCS and stop at MindTree, but we never talk about OnMobile, Nazara, Subex and Tanla.In IT, more than the product it is about brands getting created. I will single out Info Edge, that is naukri.com, simply because even from a market cap perspective it has become a largecap. It is time for most of the funds to include it as one of their core stocks given the large market cap size. During the 2007-2008 rally, companies like Tanla, OnMobile and Subex received unnecessary attention. The crash was accompanied by both low performance on the financial front as well as the corporate governance side. So there is very little credibility associated with any of these companies right now. I would not touch them and advice them for any of our investors. One big dampener has been Bharti Airtel. One year ago, Bharti was at Rs 550-560 and now also even though the market is up more than 60-70% the stock is still at Rs 560-570. What is going wrong with Bharti?We saw the ARPU trends for telecom companies going up sequentially until December quarter and we were also anticipating that the March quarter will give a further fillip to ARPUs but that was not the case. The ARPU has declined sequentially. So a lot of steam and potential that the telecom companies in general were showing was let off in the ARPU trend reversal. Hopefully, in the coming quarter we will once again see the ARPU trend back on the growth path on a sequential basis. If that happens, Bharti Airtel and other telecom stocks will go up. Right now, there are debt worries. They are now looking forward to 5G pricing and how will they get spectrums related to that. The new capex towards the spectrum will be a factor to watch out for. Otherwise, if the ARPU trend reverses we should see telecom stocks going up.

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